The main goal of Türkiye's new medium-term program (MTP) is to bring inflation down to single digits again and ensure price stability, Vice President Cevdet Yılmaz said in an interview on Thursday.
Evaluating the framework of the program announced last week, Yılmaz said the MTP is seen as a continuation of last year's program, with the same base targets and updated main forecasts.
The Turkish authorities unveiled last week a medium-term road map that provides a three-year perspective on macro policy and key economic data, including budget and unemployment figures.
In the presentation chaired by Yılmaz, both growth and inflation forecasts have been revised taking into consideration developments over the past year, including rising geopolitical tensions in the region.
Speaking to the Anadolu Agency (AA) Editor's Desk Program on Thursday, the vice president reiterated the main goal of the program is to reduce inflation, underscoring that with the removal of political uncertainties and the period without elections, predictability increases, leading to economic actors to be more comfortable.
Following last year's election, Turkish authorities orchestrated a major shift in the economic policies in a bid to rein in stubborn inflation, improve current account deficits and boost the reserves of the country's central bank.
The central bank embarked on a long tightening drive, lifting its main interest rate by a total of 4,150 basis points from June 2023 to March this year.
"After the elections last year, a new government was formed. We made a new MTP and there was a significant policy change and update," Yılmaz recalled.
He, however, maintained that the base principles of the program remain the same, drawing attention to when last year's MTP was announced there was no war in Gaza; thus the updates to the new framework were realized following certain geopolitical and economic developments.
Reiterating that the main and "most important" target of the MTP is to gradually lower inflation to single digits, Yılmaz said there were four goals of the program with the second one being to maintain growth at a certain level, and the other two to heal the wounds of the last year's devastating earthquakes and to create social welfare.
Answering the question on the ties between inflation and growth, he said this was an often discussed topic in the economic literature, as demand needs to be suppressed to some extent while reducing inflation.
"This is reflected in growth to a certain extent. There is an approach that requires some sacrifice from growth while reducing inflation. In the short term, this may be valid to a certain extent. In the short term, you may experience difficulties in between," he explained.
"When you reduce inflation, you may have to sacrifice some growth," he added, pointing out, however, that in essence, "there is no fundamental contradiction between growth and inflation."
"Why not? When you reduce inflation, you increase predictability. You create a more stable environment," said Yılmaz, adding that at the same time, this makes a better environment for investors.
Last week, while announcing MTP for the period 2025-2027, the officials said they expected Türkiye's gross domestic product (GDP) to expand by 3.5% this year, 4% in 2025, 4.5% in 2026 and ultimately 5% in 2027.
This year's forecast was lowered from the earlier projection of 4% growth, in the wake of rising tensions, while inflation expectation for the year-end was revised to 41.5%.
The annual inflation rate slowed to 51.97% in August, after falling in the previous two months from the peak in May, bringing signs of relief amid expectations for the trend to continue in the upcoming months.
"Although there may be some difficulties in the short term, I don't see any conflict between the two in the medium and long term," Yılmaz said.
The Turkish economy expanded at a slower-than-expected 2.5% on an annual basis in the April-June period, the data from the country's statistical office showed recently, weakening in the face of a yearlong monetary tightening drive.
Economists and analysts anticipate the pace of expansion to be likely modest in the remaining two quarters of the year as well, with main indicators of growth and demand such as retail sales slowing in the recent period.
Pointing out that it is possible to grow not only through consumption but in other ways as well, Yılmaz highlighted their strategy of production and boosting exports.
"You can also grow through investment, production and exports. This second channel actually supports our disinflation policy by both increasing supply and providing growth and employment. Therefore, we have a growth strategy based on production rather than consumption," he noted.
The vice president also touched upon earthquake-related spending, ongoing projects and policies in the agricultural sector while highlighting improvements in the budget deficit, the current account deficit and FX-protected accounts since last year.
"Last year, when we were making the MTP, we said that the ratio of public expenditures to national income for 2024 would be 26.9%. It seems that the realization will be 25.4%. Therefore, you see a very serious decrease in public expenditures here," he said.
He also mentioned the public savings and efficiency package unveiled earlier this year, pointing out the importance of using resources "efficiently," adding that, "The efficiency dimension of the package should not be forgotten."
Accelerating structural reforms and enhancing fiscal discipline are the critical elements of the package, with major savings announced across the sectors.
Yılmaz also evaluated the credit upgrades of the international rating agencies, seeing it as a positive development, while questioning the rationale behind it and highlighting falling CDS risk premiums and reducing current account deficits in this regard.
"Our CDS has fallen from 700 to 260-270. We are the only country where all three credit rating agencies have increased their credit ratings this year. Some have increased them several times," he said.
"Therefore, it is clear that there is a positive development. We see that there is more trust and interest in Türkiye, especially from the outside world, but this did not happen on its own. There are developments that have enabled this," Yılmaz pointed out.
Drawing attention to the fact that one of Türkiye's biggest problems from the past has been the current account deficit, he said that its levels have been falling continuously since last year to the level of 2% currently, conveying expectations for the momentum to continue and likely fall to 1.7% at year-end.
He also highlighted the aim of increasing the country's share in foreign direct investment (FDI) to 1.5% in the next four to five years and emphasized the significance of the HIT-30 program, which is particularly targeting investments in the technology sector.
